Your Dental Practice Is Packed—So Why Is Your Value So Low?

Here's the lie. More patience equals more value. Here's the truth. If your profit is low, your value is low. No matter how packed your schedule is. Buyers don't pay for busyness. They pay for clean books, bad margins, and future potential. This is part two of our Practice Value series. If you didn't listen to part one, go ahead and hit the pause button. Click back to our last episode where we really talked about the true value of a practice, which is ebitda. And now that you understand how EBITDA is the main driver for how your practice value is measured, let's talk about how to raise it and fast. Today we're unpacking how to improve profitability without burning out or chasing more volume. I think a lot of times we think, okay, in order for us to make more, we have to do more. And that's not necessarily the case. I mean, it certainly could be, but that's the fastest way to lead to burnout, right? What we are interested in talking about today is how to work smarter, not harder, to improve efficiencies and profitability in your practice. Okay, so here's what we're going to be talking about today. The first thing is what buyers look for in your financials. Last time we mentioned quickly add back. So we're going to be going into those in more detail in just a moment. We're also going to be talking about how to calculate your true ebitda. If you're like, what the heck is ebitda? Again, go back, listen to our last episode where we really define it and break that down. And the third thing is the three ways to raise your profit. Clean accounts receivable, boosting your hygiene output, and increasing treatment conversion are three things that we're going to be going into detail on today. All right, so let's jump into add backs and what buyers are really looking for in your financials. What's an add back? An add back is something that you can literally add back to your profitability or ebitda, because it's not a true business expense. So personal expenses, maybe one time costs, if you have family on payroll, that's not really working in the practice, maybe you own the building and you're paying more than triple net value. All of those things matter. And listen, I'm not a cpa. I'm not the irs. I'm not here to scold you or tell you what you should or shouldn't do. What's important for you is to understand how that impacts your value. So keep following the rules. Keep following what your CPA is telling you, but just know that these, these things really matter and they can help improve your practice value by going through a process of adding them back. So again, personal expenses that gets added back to your ebitda, family payroll gets added back to your ebitda. And then the other thing to really take into consideration, which I think is the biggest unknown or confusing thing that happens when we're looking at ebitda, it's like, well, my CPA told me my EBITDA is X. It's like, well, a lot of times what happens is we're not taking into consideration actually paying the doctor for the production that they're doing. A lot of times that's happening in a draw, or maybe you're not even paying yourself a W2 or it's a lower amount than 30%. And so it's really important to understand, again, don't change what you're doing. And that can be a negative add back if you're not actually paying yourself appropriately. Because guess what, when you do go to sell your practice and you are producing as an employee, at that point in time the buyer will be paying you. You won't be getting paid last anymore, they will be paying you. And so that does impact profitability and ebitda. So that would be called go forward doctor's compensation. What are you being paid going forward post sale? And that's something to keep in mind when you're looking at add backs. Once you go through the process of adding back those personal expenses, those one time expenses, adjusting for rent, for compensation, you know, that's all very straightforward and easy to understand. The next thing is not as easy to uncover, which is really stopping the leaks of where you are spending money that aren't adding to your profitability. That would be called assessing your expenses to ensure you're receiving a return on investment for everything. There's three types of expenses, right? You have consumptive expenses, meaning you put a dollar out and you're not getting a dollar back. You have a consumptive expense, which means that you are putting a dollar amount, a dollar out and you receive a dollar back. And then you have productive expenses, meaning you spend a dollar and you get $10 back. Okay, so we want to look and see how do we maximize all of our expenses to be productive, not just leaking money, not just a dollar for dollar back. So what are some of those main culprits of destructive or consumptive expenses? You know, a lot of it could be maybe you have PPOs that you're actually paying more for those patients to come in and get treated than you're actually receiving more for the value of your dentistry. So let's talk about some of those main areas where we're really seeing leaking money that isn't adding back to our profitability. One of them could be insurance that your patients are on PPOs that your patients are on, where you're actually paying to have those patients come in for treatment. And we've seen it before. So assessing PPOs, assessing your insurance, assessing your fee schedule is really important. You might have uncollected accounts receivable. That's just sitting there. And guess what? If you were to collect that, that would go straight to your ebitda. Unless you hire someone to do it right, which is definitely worth a good. I would call that a productive expense for sure if it's done well. And we have great partners that do that. But uncollected AR is like the number one thing that you can do to boost your EBITDA right now. Also, you know, do you have low treatment acceptance? Do you have low collections versus your production? All of those things are getting the annual value of one patient in your practice that's active. What's an active patient? They've been in in the last 18 months. So you'll see here, the top section is called case acceptance. And you'll notice that it says crown and buildup. Now, don't get me wrong, we're not saying go do a crown and a buildup on every single patient, okay? That would not be what we're saying here. What we're saying is that after 26 years in business, we can accurately predict that each active patient will be investing in the treatment value of a crown and a buildup annually. So some patients don't need any restorative care. So I might need a whole lot more than a crown and a buildup. And so we can average out what each annual patient will spend on average using that crown and a buildup fee schedule. Now, if you have mainly PPOs, use your average PPO fee. If you're a fee for service, use your fee for service fee. Maybe you're 50, 50. Maybe you want to do two of these. One with 50% of your patient based on PPOs, one with 50% of your patient based fee for service. So make sure you're pulling the appropriate fee there. Next is going to be your hygiene revenue for a patient. So each patient coming back twice a year in hygiene. So that should be a no miss for you. 90% of the time that should be happening. So two, two exams, two profies, a set of bitewings is what's happening for our hygiene patients. That is your annual value of having them come back twice a year. So you add those two numbers together, you get your total value for one patient in your practice, and then you multiply that by the number of active patients in your practice. Again, run a report, last 18 months, you should be able to find that information that gives you your capacity. Now, we're not saying that this is what you should be doing. We're saying this is what you could be doing. And if you are like at capacity, you're like, okay, you know, I'm at 1.3. This is saying 1.3. I am there. Spend, invest in marketing, right? Maybe you want to, or maybe you want to add new services. In the show notes, you can get access to our loss revenue locator at no cost. And if you want to click that open, I can kind of walk you through what that looks like. The whole point of the loss revenue locator is to determine, well, obviously what your practice capacity is. But we do that by determining the annual value of one patient in your practice that's active. What's an active patient? They've been in in the last 18 months. So you'll see here the top section is called case acceptance. And you'll notice that it says crown and build up. Now, don't get me wrong, we're not saying go do a crown and a buildup on every single patient, okay? That would not be what we're saying here. What we're saying is that after 26 years in business, we can accurately predict that each active patient will be investing in the treatment value of a crown and a buildup annually. So some patients don't need any restorative care. So I might need a whole lot more than a crown and a buildup. And so we can average out what each annual patient will spend on average using that crown and a buildup fee schedule. Now, if you have mainly PPOs, use your average PPO fee. If you're a fee for service, use your fee for service fee. Maybe you're 50, 50. Maybe you want to do two of these. One with 50% of your patient based on PPOs, one with 50% of your patient based fee for service. So make sure you're pulling the appropriate fee there. Next is going to be your hygiene revenue for a patient. So each patient coming back twice a year in hygiene, that should be a no miss for you. 90% of the time that should be happening. So two. Two exams, two prophys, a set of bitewings is what's happening for our hygiene patients. That is your annual value of having them come back twice a year. So you add those two numbers together, you get your total value for one patient in your practice, and then you multiply that by the number of active patients in your practice. Again, run a report, last 18 months, you should be able to find that information that gives you your capacity. Now, we're not saying that this is what you should be doing. We're saying this is what you could be doing. And if you are like at capacity, you're like, okay, I'm at 1.3. This is saying 1.3. I am there. Spend, invest in marketing. Right? Maybe you want to. Or maybe you want to add new services. There's different things that you can certainly do. Now, most of the time what we see is you're producing 1.3, collecting 1.3, and your capacity is like 4 million. And you're like, oh, wow, okay, this is great. A little overwhelming maybe. And so you want to then look internally at some different KPIs and levers to pull to really maximize that, which is where the team comes in. Right? What's your diagnostics percentage in restorative care? What's your case acceptance percentage in restorative care? Same thing for hygiene. What's the hygiene value of your practice? What's your patient attrition? Do you have patients coming in the front door, leaving up the back door? That's one of my favorite things to see is when someone's spending 70,000 a year on marketing. They have, you know, 20 new patients a month, but then they lost 25 new patients a month. So they're not. They're not. Patient growth is actually negative 5. The other crazy thing that we tend to see with that is their reappoint for those new patients in hygiene is like 45% when it should be at 90% and their existing patients are reappointing at 85%. Right? Or their case acceptance for those new patients is at 50% while their existing patients are accepting restorative treatment at 67%. And so again, they're spending all this money on marketing. The new patients are actually a distraction, right? They are not dropping into recare. They're not accepting treatment like the existing patients. And we're just letting the existing patients walk, walk out the back door. So something really important to take a look at the. One of the, not the biggest leaks we See, but definitely a distraction and strategy. If you don't have the right strategy in place, then you're kind of just wasting time. And I don't waste time. Right. So I want to talk to you about Dr. M, who had a very similar story. You know, he did have a packed schedule, but it was very much so busy. They were filling blank space instead of productive. So thin margins happening for his practice. His hygiene department was definitely under producing, his follow ups were very weak and he was really the one driving all the numbers and very self. Admittedly, you know, his diagnostic was a little bit low and he's like, listen, I don't always have all the time. I want to be able to educate my patients. And the big thing there is like it should be a team approach. Right? So we trained the team, we implemented proper scripts, we put in specific metrics by position, we compensated the team with an individual performance based bonus. And guess what? Within 90 days, his EBITDA was already up by 10%. That's only going to continue to grow with these systems in place. All right, so again, I really urge you to go ahead and take the loss revenue locator quiz. The link below will take you there. It's that quiz we were talking about earlier. And it really allows you to understand where your gaps are for growth. Top line growth, which is going to lead to bottom line growth. Because this is all about working smarter, not harder, Right? You're already seeing these patients, but if we're not converting them, we are working harder, not smarter. So know where to start and then watch your value grow. To recap, today we talked about understanding how every dollar you spend is technically $10 back from an equity value. Right? So if you didn't catch that, that means that's where we were talking about those consumptive, destructive and productive expenses. But every dollar you spend is $10 back in equity value, so. So make sure you're spending your money wisely. Paying yourself last is actually hurting the value of your practice. Again, I'm not saying to change the way you compensate yourself, but understand that if you're not paying yourself appropriately, it is impacting the value of your practice. And lastly, the loss revenue locator is your key to raising profits and putting a strategy in place. That's going to be right from the get go. I'm Kelly Dahmer and this is the Next Level Practice Podcast. Stay tuned for our final episode in our three part series on Practice Value. We're going to be talking all about.